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Monday, February 27, 2012

1978 to today - What has changed in airline distribution since deregulation?

For those of us that have been a part of the industry for the better part of the last 4 decades, we have seen so much change. This week we are going to take a look at some of these changes for the airline industry.

MARRYING BUYERS AND SELLERS
The definition of distribution is the marriage of buyers and sellers. While that has not changed over the course of the last 40 years, the way that they have been connected has definitely changed.

Following is a picture of the milestones that have impacted distribution in our industry.

In 1970, nearly a decade before deregulation and the advent of travel agency automation, there were just 6,407 agencies, selling just $2.0 billion in air ticket sales, out of a total of $9.2 billion sold system wide in the US, or 23% of total. Agencies utilized the phone and couriers to conduct their business and airline city ticket offices were commonplace in cities across the US and around the globe.

In 1978, the airline industry was deregulated and the number of agencies skyrocketed to 14,804. At the same time, American and United were aggressively installing their Sabre and Apollo central reservations systems (then known as CRS) into the largest agencies, facilitating significant growth in productivity by automating availability, pricing, booking and ticketing.

As you can see from the graph above, airline sales continued to flourish post-deregulation and agency sales grew to 54% of airline sales by 1980, largely due to the advent of CRS-based travel agency automation. American and United had been joined in the automation game by PARS (TWA), SystemOne (Eastern) and Datas II (Delta), with the systems evolving to global distribution systems (GDS) as the parent airlines expanded their airline networks internationally.

By 1990, nearly all agencies in the US were using one or more of the GDS systems and the agency community was now delivering 65% of all airline ticket sales in the US. International counterparts, Amadeus, Galileo and Abacus had been added to the GDS lineup. By 1996, the total number of agencies in the US had grown to its all-time high of 47,286, just as online players (led by Travelocity and Expedia) began to enter the scene.

In 2000, the dynamics began to shift, with airlines cutting commissions to agencies and taking advantage of the now-ubiquitous World Wide Web, pushing more and more of their sales through their own channels. That year, agency sales fell for the first time in three decades to 64% of total.

By 2010, the sheer number of agencies had declined substantially, but more importantly, the pure play online agencies became a significant force in the distribution of airline tickets. But even including both online and offline agencies, air ticket saleswas now just 59% of total.

But don't write off the agency channel, as the brick and mortar agencies still represent the highest yield channel for the airlines.

Tomorrow, we'll take a deeper look at the channel shift that occurred during this period and more at the yield from each part of the industry.